Flash Report /
Egypt

Pharos Investor Conference: Meeting Minutes – Contractors and Cables

    Mark Adeeb
    Mai Ayoub
    Al Ahly Pharos Securities Brokerage
    23 June 2019

    Government spending to drive growth

    •    Awards in Egypt will remain highly skewed towards infrastructure investments due to high interest rates and low return on investment.
    •    Water treatment, renewables, transmission & distribution, road works will continue to drive awards, whereas power generation awards in Egypt likely to fall since current power generation capacity exceeds consumption significantly.

    Orascom Construction (FV: EGP180/USD10.1, OW)
    •    The company is currently looking for projects across the MENA region as part of its plan to diversify operations outside Egypt.
    •    The company is typically looking for populous countries that require significant infrastructure investments.
    •    OC is currently looking for awards in Iraq.
    •    The company is focusing on projects related to water treatment, road works, airports, renewables and planning to increase its recurring income through expanding its operations and maintenance segment.
    •    OC and Bombardier consortium is currently the preferred bidder for the Monorail


    El-Sewedy Electric (FV: EGP18.94, OW)
    •    Management noted that FY20 top line will hover around the EGP50bn mark.
    •    The expansion in the wires and cables segment in Europe is still under study due to the slim margins.
    •    Management currently looking for new markets to penetrate in Africa, Asia, and Latin America through organic and/or inorganic growth through M&A activity.
    •    The company is currently focused on growth which could result in lower margins going forward. Worth noting that the growth strategy will go in tandem with dividend distribution.
    •    The market dynamics in Saudi Arabia remain challenging whereas, the company has been able to repatriate dividends from Algeria at the official FX rate for the past four years.
    •    The company guided for turnkey revenue of EGP18-19bn in FY19 and the segment’s margin should normalize to 13-14%.
    •    Tanzania project should contribute to top line starting FY20.
    •    The recent renewables acquisition in Greece has an IRR slightly higher than mid-teens and will contribute around EUR10mn to top line.
    •    It is worth noting the funding is a ring-fenced project covering 75% of the total transaction value – EUR55mn – and the rest is funded through equity. The project has a fixed tariff.